Robust Income Growth in 2015

The U.S. Census Bureau released 2015 household income information this week and the news—for the most part—was positive. Real (i.e., inflation-adjusted) income increased by the largest annual rate since the Great Recession, both nationally and in Minnesota. Furthermore, the increase was widespread, affecting nearly all demographic groups. On the other hand, median household income remains below pre-Great Recession levels, albeit slightly.

The new Census information comes from two different data sets: the Current Population Survey (CPS) and the American Community Survey (ACS). The differences between these two data sets are described in an on-line Census Bureau document. Like all surveys, findings from the CPS and the ACS have a margin of error, although the ACS is based on a larger sample and thus has a smaller margin of error at the national level than does the CPS. In addition, 2015 CPS data is not yet available for individual states, while 2015 ACS data is available for Minnesota and other states.

In constant 2015 dollars, the mean U.S. household income (i.e., total income divided by the number of households) grew from $75,825 in 2014 to $79,263 in 2015 based on CPS data, an impressive 4.5 percent growth rate. More importantly, median household income (i.e., the income level which divides the national population into equal groups, with half of the households below the median and half above) grew from $53,718 in 2014 to $56,516 in 2015, a 5.2 percent increase. The median is a better measure of the prosperity of the typical household because it is not disproportionately skewed by rapid income growth among extremely high-income households.

It is important to note that the growth rate in mean and median income is after adjusting for inflation and thus reflect real growth. The growth in real income from 2014 to 2015 was facilitated by a low 0.1 percent rate of inflation as measured by the Consumer Price Index (CPI-U-RS).

U.S. income growth in 2015 was widespread, with both family households and non-family households* increasing at rates similar to the national average for all households. Real household income also increased for all racial categories. Furthermore, some degree of real growth occurred among all of these categories even after taking into account the margin of error. Median incomes increased more rapidly among white households than among black households; thus the income gap between whites and blacks increased from 2014 to 2015, at least at the national level.

However, based on data from the ACS, the income gap between blacks and whites in Minnesota appears to have declined from 2014 to 2015, although, because of the margin of error in these estimates, it is impossible to be 100 percent certain that Minnesota’s black-white income gap has actually shrunk. This topic will be revisited in part 3 of this series.

The earnings gap between men and women became slightly smaller at the national level. The earnings of full-time year round male workers increased from $50,441 in 2014 to $51,212 in 2015—an increase of 1.5 percent, while the earnings of females increased from $39,667 to $40,742—a 2.7 percent growth rate. As a result, the U.S. female-to-male earnings ratio increased by a small margin, from 0.786 to 0.796.

CPS data reveal that—as a result of strong growth in 2015—inflation-adjusted mean household income in the U.S. is now 2.6 percent above the level it was at in 2007—on the eve of the Great Recession. However, median household income is still 1.6 percent below the 2007 level. Even after taking into account the margin of error in these estimates, it is clear that the real mean income increased above the 2007 level, while the median remains below it.

As noted above, median income is a better indicator of the condition of the typical U.S. household than is mean income; the fact that median income remains below the 2007 level is an indicator that most U.S. households have not recovered all of the ground lost since the Great Recession. On an optimistic note, another year of strong growth such as that seen in 2015 should be sufficient to raise the U.S. median income above pre-Great Recession levels. In fact, a repeat in 2016 of the strong growth performance seen in 2015 would be sufficient to raise median income above the previous peak reached in 1999.

The new CPS data revealed other encouraging national trends in regard to earnings, poverty, and income inequality. In addition, the new ACS data reveals other interesting findings for Minnesota. This information will be explored in subsequent articles in this series.

*A family household consists of a householder and at least one other person related to the householder by birth, marriage, or adoption. A non-family household consists of a householder living alone or with non-relatives only.

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